SSAB AB (publ) (STO:SSAB A) Investors Are Less Pessimistic Than Expected

There wouldn't be many who think SSAB AB (publ)'s (STO:SSAB A) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Metals and Mining industry in Sweden is similar at about 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for SSAB

What Does SSAB's Recent Performance Look Like?

SSAB hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SSAB.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like SSAB's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.2%. Still, the latest three year period has seen an excellent 88% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the analysts covering the company are not good at all, suggesting revenue should decline by 6.6% each year over the next three years. The industry is also set to see revenue decline 0.06% per annum but the stock is shaping up to perform materially worse.

In light of this, it's somewhat peculiar that SSAB's P/S sits in line with the majority of other companies. With revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. Maintaining these prices will be difficult to achieve as the weak outlook is likely to weigh down the shares eventually.

The Bottom Line On SSAB's P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

SSAB currently trades on a higher P/S than expected based on revenue decline, even more so since its revenue forecast is even worse than the struggling industry. It's not unusual in cases where revenue growth is poor, that the share price declines, sending the moderate P/S lower relative to the industry. We also have our reservations about the company's ability to sustain this level of performance amidst the challenging industry conditions. This presents a risk to investors if the P/S were to decline to a level that more accurately reflects the company's revenue prospects.

It is also worth noting that we have found 1 warning sign for SSAB that you need to take into consideration.

If you're unsure about the strength of SSAB's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.